DST Systems Management Discusses Q2 2012 Results - Earnings Call Transcript

DST Systems (DST)

Q2 2012 Earnings Call

August 01, 2012 9:00 am ET


Thomas A. McDonnell - Chief Executive Officer and Director

Stephen C. Hooley - President, Chief Operating Officer and Member of Proxy Committee

Kenneth V. Hager - Chief Financial Officer, Vice President, Treasurer and Member of Proxy Committee


James F. Kissane - Crédit Suisse AG, Research Division

David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

Peter J. Heckmann - Avondale Partners, LLC, Research Division



Good morning, and welcome to the DST Systems, Inc. Q2 2012 Earnings Conference Call. [Operator Instructions]

Now I would like to turn the conference over to our host, Mr. Tom McDonnell. Please go ahead.

Thomas A. McDonnell

Good morning. Thanks for joining us. We need to remind everyone that in the course of our conference call today, we'll be making forward-looking statements regarding DST and any of its businesses. Such statements are based on our views as of today, and actual results could differ materially from forecasted results.

There could be a number of factors affecting future results including those risk factors set forth in our latest annual and quarterly reports that we filed with the SEC. All such factors should be considered in evaluating any forward-looking statements that we may make.

Since the participants on the call have access to our detailed earnings release, we'll focus our comments on those items that we believe to be most significant. As a reminder, all of our comments on the financial results refer to our non-GAAP results. A reconciliation to the most comparable GAAP measures have been provided in the second quarter earnings release.

I'm joined on the call today with -- by Steve Hooley, our President and Chief Operating Officer; and Ken Hager, our CFO.

Before we discuss some of the financial results for the second quarter, I thought we'd take a few minutes discussing some of the recent asset monetizations and our announcement to discontinue the development of a processing solution for the U.S. insurance marketplace.

On assets, we realized $158.2 million of cash proceeds from the sale of investments during the quarter. That included $138.7 million from the sale of a portion of our investment on a privately-held company into a transaction that was arranged by that company. Since November 2, 2011, when we made an announcement of DST's board's commitment regarding the company's business plan and strategy, we've realized $250 million of cash, and that consists of $202.7 million of cash proceeds from the sale of investments. And we also received a $47.3 million dividend from that privately-held company, and that was received during the second quarter. The cash referred to above from all of these transactions, we primarily used that to reduce debt.

We are continuing to evaluate our investment assets for potential monetization on an ongoing basis and evaluating alternative uses for proceeds received.

Turning to the insurance decision. When we look at our analysis of the North American market for insurance processing, that led us to seize the development of our solution. It was being built around the Percana software, which is licensed from IFDS Ireland which is one of our joint ventures with State Street Corporation.

In connection with looking at that decision, a charge of approximately $0.11 per diluted share in the form of an asset impairment charge and severance cost was recorded in the quarter.

Despite this decision, the insurance market continues to be a key vertical market for DST. We have relationships with more than 20 of the top 25 insurance companies in the U.S., and DST will continue to provide mutual fund processing, retirement solutions, output operations and also our AWD suite of products to that insurance marketplace. And this decision was based on North America only. It does not impact the company's U.K. and European strategy for insurance processing, and that's being implemented through IFDS. And we'll have a couple of comments on some of the recent successes there a little later in the call.

So taking into account a number of things on an adjusted non-GAAP basis, diluted earnings per share for the quarter were $0.77, and that compares to $1.05 for the second quarter of '11 and it also compares to $1.05 for the first quarter of '12. We generally don't try to provide a comparative analysis from like previous quarter to current, but when we look at all the components that have come into this quarter's results, we think it's appropriate to try and take a look at some of the significant variances from the first quarter to kind of give you a map from there to Q2.

So there are a number of factors, several of them being nonoperating, that resulted in a $0.28 reduction in the non-GAAP earnings for the second quarter as compared to the first. One of the more significant wins was a change in our estimated full year 2012 income tax rate and that negatively impacted the second quarter's diluted earnings by approximately $0.13 a share. So the full year 2012 estimated tax rate, we've increased it from 34.5% in the first quarter to our estimate now, which will be 37%, and that recorded in the second quarter. And that's a function of lower foreign tax credits available to us, some increased losses in international subsidiary, and in either of those cases, there's no current tax benefit.

So in order to get to the 37%, a 41.8% tax rate was needed to be recorded in the second quarter to bring the whole year in line with what are our current expectations which, again, is at 37%.

Read the rest of this transcript for free on seekingalpha.com

If you liked this article you might like

DST Systems (DST) Stock Tumbles on Q3 Revenue Miss

DST Systems (DST) Stock Tumbles on Q3 Revenue Miss

Insider Trading Alert - DST, GSVC And URI Traded By Insiders

Insider Trading Alert - DST, GSVC And URI Traded By Insiders

Insider Trading Alert - TMUS, INTC And DST Traded By Insiders

Insider Trading Alert - TMUS, INTC And DST Traded By Insiders

Ex-Dividend Alert: 3 Stocks Going Ex-Dividend Tomorrow: AMFW, GPRE, DST

Ex-Dividend Alert: 3 Stocks Going Ex-Dividend Tomorrow: AMFW, GPRE, DST

Insider Trading Alert - DST, CFFN And EA Traded By Insiders

Insider Trading Alert - DST, CFFN And EA Traded By Insiders